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India’s Narendra Modi, who recently concluded his first 100 days as Prime Minister of the world’s largest democracy, will visit the White House on September 29-30. President Obama and Prime Minister Modi will have plenty to discuss, but arguably the top trade issue on the agenda is India’s move in July to block the first multilateral trade agreement in a generation.
The U.S. Chamber is deeply concerned that India walked away from the consensus achieved last December in Bali, Indonesia, where the World Trade Organization (WTO) reached its first real agreements in nearly two decades. One part of the so-called Bali Package is the Trade Facilitation Agreement (TFA), which will reduce red tape at the border by modernizing customs processes while eliminating opportunities for corruption through improved transparency.
The Peterson Institute for International Economics has estimated the TFA could boost the world economy by as much as $1 trillion and generate as many as 21 million jobs globally. The lion’s share of these benefits would go to the developing world.
There’s more in the Bali Package than the TFA. India also won unprecedented flexibilities to address its “food security” concerns. As the Financial Times reports, India has dramatically increased its agricultural subsidies in recent years, with officials emphasizing the need to help the country’s subsistence farmers. However, India’s surging farm production is now causing headaches for other countries:
New Delhi’s stand [on the TFA] is finding few backers in the developing world… India has overtaken the EU as the largest exporter of agricultural commodities to the world’s least developed countries, according to the US Department of Agriculture. Moreover, India’s critics believe much of that surge has been boosted by the very food security programme that it is now defending at the WTO.
Rwanda’s trade minister, Francois Kanimba, says his country has seen a surge in food imports from India at improbably low prices. This rise has complicated Rwanda’s own efforts to build food security. Agricultural commodities from India such as rice and sugar had been reaching Rwanda “at such low prices [that] you are left wondering if these are really global market prices, simply explained by the competitiveness of the Indian economy,” he told the Financial Times in an interview.
By blocking the Bali Package—and doing so almost singlehandedly—India risks sinking not just the TFA but the flexibilities on food security that it won last December. Those new flexibilities are bound to the TFA in the Bali Package, and without them it appears India’s subsidies will soon be challenged at the WTO.
In short, India is holding the Bali Package hostage—but it’s a hostage India doesn’t want to shoot.
The Chamber sees this visit to Washington as an opportunity for the Prime Minister to be the statesman who rescues the Bali Package. Prime Minister Modi’s influence on the world stage would benefit significantly if he can find a way to accept the Bali Package and the flexibilities it offers India.
Bringing down the first multilateral trade agreement in a generation is no way to signal to the world that India is “open for business.” But by taking yes for an answer—accepting the win India secured in the Bali Package—Prime Minister Modi has the opportunity to do a great favor for the poor of India—and the world.